Sino-Thai Engineering & Construction

Sino-Thai Engineering & Construction Plc (STECON)
Core profit +11% YoY and 16% QoQ to Bt308mn: For the third consecutive quarter,
profit beat estimates at +14% above consensus and 18% above SCBS. Gross margin was
slightly below, but was more than offset by stronger revenue and good cost control.
9M12 profit grew 32% YoY to Bt875mn, 85% of our full-year forecast. We raise 2012F by
7% to Bt1.1bn (+22% YoY) with a new TP of Bt28/sh as we roll valuation to end-2013.

Highlights:
Revenue up 35% YoY to Bt5.8bn. Work on government projects is proceeding
quickly, especially on the Purple and Blue lines. We estimate end-3Q12 backlog at
Bt42bn and another Bt25bn is waiting to be signed, including Red Line Contract #1
worth Bt17.8bn, for which we expect construction to begin in 2Q13.

Gross margin down to normal; costs controlled. After an abnormally high
gross margin in 1Q12 at 9.1% and 2Q12 at 9.5%, gross margin returned to a more
normal 7.6%, upon more revenue from government projects (lower margin than
private power projects, which backlog was more geared to earlier). Costs are well
controlled with SG&A expense to sales down 36bps YoY and 81bps QoQ to 2.4%.

Raise 2012F by 7% on high revenue. We now expect profit growth of 22% this
year to Bt1.1bn. Since it resumed paying tax, the pre-tax level is a better indicator
– and this should climb 45% this year. Our assumption for 2013F of revenue growth
of 19% and gross margin of 7.9% is conservative – we see upside risk, especially if
STEC is able to secure significant new work from government projects next year.

New end-2013 TP of Bt28/sh. Our TP is based on EV/backlog ratio of 0.4x (3-yr
average).This is still conservative against the range of 0.6-1.7x at which it traded in
previous years when governments sped up large projects. On a P/BV level it is still
attractive, trading at 4.4x 2013F vs. range of 3-6x in the past.